This paper discusses the discounted utility (DU) model: its historical development, underlying assumptions, and "anomalies" - the empirical regularities that are inconsistent with its theoretical predictions. We then summarize the alternate theoretical formulations that have been advanced to address these anomalies. We also review three decades of empirical research on intertemporal choice, and discuss reasons for the spectacular variation in implicit discount rates across studies. Throughout the paper, we stress the importance of distinguishing time preference, per se, from many other considerations that also influence intertemporal choices.

/pdf/time-discounting-and-time-preference-a-critical-review-47don96ek5.pdf

Time Discounting and Time Preference: A Critical Review

Is the way that people make risky choices, or tradeoffs over time, related to cognitive ability? This paper investigates whether there is a link between cognitive ability, risk aversion, and impatience, using a representative sample of the population and incentive compatible measures. We conduct choice experiments measuring risk aversion, and impatience over an annual time horizon, for a randomly drawn sample of roughly 1,000 German adults. Subjects also take part in two different tests of cognitive ability, which correspond to sub-modules of one of the most widely used IQ tests. Interviews are conducted in subjects' own homes. We find that lower cognitive ability is associated with greater risk aversion, and more pronounced impatience. These relationships are significant, and robust to controlling for personal characteristics, educational attainment, income, and measures of credit constraints. We perform a series of additional robustness checks, which help rule out other possible confounds.

/pdf/are-risk-aversion-and-impatience-related-to-cognitive-3n71ze8tmw.pdf

Are risk aversion and impatience related to cognitive ability

We estimate individual discount rates with respect to time streams of money using controlled laboratory experiments. These discount rates are elicited by means of field experiments involving real monetary rewards. The experiments were carried out across Denmark using a representative sample of 268 people between 19 and 75 years of age. Individual discount rates are estimated for various households differentiated by socio-demographic characteristics such as income and age. Our conclusions are that discount rates are constant over the 12-month to 3-year horizons used in these experiments, and that discount rates vary substantially with respect to several socio-demographic variables. Hence we conclude that it would be reasonable to assume constant discount rates for specific household types, but not the same rates across all households.

/pdf/estimating-individual-discount-rates-in-denmark-a-field-2q1tl4u7tp.pdf

Estimating Individual Discount Rates in Denmark: A Field Experiment

Languages differ widely in the ways they encode time. I test the hypothesis that the languages that grammatically associate the future and the present, foster future-oriented behavior. This prediction arises naturally when well-documented effects of language structure are merged with models of intertemporal choice. Empirically, I find that speakers of such languages: save more, retire with more wealth, smoke less, practice safer sex, and are less obese. This holds both across countries and within countries when comparing demographically similar native households. The evidence does not support the most obvious forms of common causation. I discuss implications for theories of intertemporal choice.

/pdf/the-effect-of-language-on-economic-behavior-evidence-from-5g7egkflfh.pdf

The Effect of Language on Economic Behavior: Evidence from Savings Rates, Health Behaviors, and Retirement Assets.

Experimental tests of dynamically inconsistent time preferences have largely relied on choices over time-dated monetary rewards. Several recent studies have failed to nd the standard patterns of present bias. However, such monetary studies contain oftendiscussed confounds. In this paper, we sidestep these confounds and investigate choices over consumption (real eort) in a longitudinal experiment. We pair this eort study with a companion monetary discounting study. We conrm very limited time inconsistency in monetary choices. However, subjects show considerably more present bias in eort. Furthermore, present bias in the allocation of work has predictive power for demand of a meaningfully binding commitment device. Therefore our ndings validate a key implication of models of dynamic inconsistency, with corresponding policy implications.

/pdf/working-over-time-dynamic-inconsistency-in-real-effort-tasks-59k3nppmdm.pdf

Working over Time: Dynamic Inconsistency in Real Effort Tasks

The military drawdown program of the early 1990s provides an opportunity to obtain estimates of personal discount rates based on large numbers of people making real choices involving large sums. The program offered over 65,000 separatees the choice between an annuity and a lump-sum payment. Despite break-even discount rates exceeding 17 percent, most of the separatees selected the lump sum--saving taxpayers $1.7 billion in separation costs. Estimates of discount rates range from 0 to over 30 percent and vary with education, age, race, sex, number of dependents, ability test score, and the size of payment.

https://www.jstor.org/stable/pdfplus/2677897.pdf

The Personal Discount Rate: Evidence from Military Downsizing Programs

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The Personal Discount Rate: Evidence from Military Downsizing Programs